Here are the construction trends to watch in Arizona
It’s an exhilarating time to be a builder in Arizona. Record construction activity has continued through 2019, with multi-million dollar projects being built in all corners of Arizona. Despite all of the activity and excitement, the builders in Arizona continue to wrestle with maintaining and training their workforce, a rise in materials costs, the inevitable slowdown that is on the horizon and other construction trends and issues. Having the ability to post a construction bid bond on tenders is also becoming necessary for most construction companies as general contractors want more protection when working with their subs. Learn the meaning of bid bonds to understand how contractors are leveraging bonding instead of their own collateral cash when bidding.
These Arizona Builders Alliance leaders provided some of their expertise to AZRE Magazine on what issues they are facing and how they are keeping up with the rapid pace of growth in Arizona.
Has the skilled workforce issue in Arizona improved in the last 3-5 years, and if not, how has your company adapted to this new reality?
Justin Martin, President & CEO, Partner, Corbins Electric: The demand for electrical services has outpaced the development of skilled workforce in Arizona over the past 5 years. Corbins has responded to supporting these increased opportunities on three fronts. First is through the effective implementation and development of construction technologies that have decreased the overall headcount as well as the level of experience necessary to meet project demands. Secondly, by investing heavily in Workforce Development; creating and deploying training modules for our existing workforce. Lastly, we have worked to attract talent from other areas of the country to come to Arizona to participate in these building opportunities.
Lorraine Bergman, President/CEO, Caliente Construction: We have seen little improvement in the continued demand of skilled workforce in Arizona. Fortunately, our company reputation has allowed us to continue to grow our professional and qualified staff through employee and subcontractor referral. Regarding our projects, we recognize the magnitude of work taken on by the subcontractors during this busy time has created a hardship in meeting schedules. To offset the demands, we now seek to better understand whether they have availability to appropriately schedule and service the project before awarding.
Kimberly Davids, General Manager, Weitz: The skilled workforce in Arizona is more competitive in the last few years as there is a decrease in people entering the skilled labor and technical trades. While the quality of labor has increased, the quantity of labor hasn’t. We have started to engage sub-consultants and trades earlier to secure labor on upcoming projects and internally, we have increased our college recruiting programs to identify key targets earlier. We have also invested in the Greater Phoenix Chamber’s Build Your Future initiative to be an active member in the industry to help foster growth amongst the skilled labor workforce.
Justin Dent, Senior Vice President of McCarthy’s Southwest Region: We’re working hard to attract top talent through McCarthy’s 5-step program, which also involves proactively working to open the industry to more women, and we’re seeing significant positive results nationally.
1. Recruiting: Recruit full-time professionals and seek out various levels of developing talent, including veterans; students in middle or high school and college; those involved in vocational training programs, like SkillsUSA and JTED; and those displaced by downturns in American manufacturing.
2. Training: McCarthy’s award-winning full-time training team and comprehensive skills assessment along with our onboarding programs give people the right tools to succeed throughout their careers and grow professionally.
3. Workforce Management: We identify which skills and capabilities are required for each project and deploy our workforce accordingly.
4. Retention: Keeping craft professionals in the trade is a critical goal. So, we support them with robust human resources and a deep package of financial incentives.
5. Referrals: Once craft professionals join McCarthy, our Craft Referral Program pays them a bonus to refer new candidates.
Marc Kinseth, President, Sun Mechanical Contracting, Inc.: Unfortunately the skilled workforce in southern Arizona has been an issue for the last 10-15 years. In the past, there has always been a lot of good people that want to work hard, but just don’t have the training. Now, it is hard to find good hard-working people available in the market. We realized about 15 years ago that we needed to do something, so we started our own state and federally approved apprentice program. To date, we have probably put 40-50 tradesman through a 5-year program. It not only trains good tradesman but also creates a sense of loyalty between the employee and employer.
Other than workforce shortages, what are the biggest challenges builders in Arizona face during this current growth cycle?
MK: At the state level, we are constantly dealing with new laws affecting the workforce, whether it be minimum wage, paid time off, etc. I am a big believer in taking care of the workforce, but when it comes to added costs that effect that bottom line, change needs to happen slowly. At the federal level we are dealing with tariffs and material shortages related to these tariffs. All of these are items that can’t be anticipated when you are bidding projects that are 2-4 years long.
LB: The biggest challenge is the increase in material and labor costs. Inflating cost creates project delays, reduced scopes or cancellations due to budget busts. Owners are also looking at alternate staffing solutions in lieu of remodels/tenant improvements.
JM: Talent beyond the tradesman is another big challenge for contractors. Growth has created opportunities for upward mobility to contractor employees into management and supervisory positions. The development of soft skills, management and scheduling techniques, and financial acumen for project management teams and field supervision at the pace necessary to meet the demand can create a significant burden on senior leaders. Providing these opportunities can also take valuable team members out of the field.
How has new and emerging technology helped Arizona builders be able to keep up?
LB: What really stands out on the construction side is our ability to update our projects in real time, which greatly adds to our overall efficiency. Project management software integrates construction activity with job costing and maintains efficient and effective document control. We utilize Bluebeam for innovative solutions in preconstruction, as well as editing and marking up plans which allows us to collaborate with all stakeholders during design and construction.
KD: Builders are adopting technologies that allow owners and end users to see and experience their sites before they are built. The progress in virtual design, online management tools, iPads, Microsoft Surfaces as examples have allowed Arizona builders to build more efficiently and cost effective. Prefab manufacturing can also lead to faster build times and save owners money and time.
JD: Technology plays a critical role in enhancing quality, cost management and creating efficiencies. With technology, we can do things better, smarter and faster with fewer resources.
We particularly see this in Virtual Design Construction (VDC) whereby early collaboration and coordination with the design team provides innovative solutions to design, material selections and is resulting in a positive impact on costs, scheduling and finding efficiencies.
From your perspective, how much longer will we see this frantic pace of construction activity in Arizona?
MK: I really see in the southern Arizona market about 2-3 years of strong construction activity. The metropolitan areas are seeing a huge growth in multifamily housing and entertainment/restaurant venues to meet the new generation workforce that doesn’t need to leave home to run their business. The healthcare market is going to remain strong. New regulations and technology constantly change how the hospitals and clinics have to do business. This usually requires some type of building infrastructure changes.
KD: 2020 has a positive outlook, but there is going to be a market correction eventually. The current pace isn’t sustainable but when a slow down does hit, it won’t be as drastic as it was in 2008. Companies are also better prepared to help anticipate and weather the impacts of a downturn.
Things are looking positive for the foreseeable future. Maricopa County has been reported as one of the fastest growing counties in the nation and large technology and mission critical owners are choosing Arizona as the location for their projects. I believe the diversity of economic drivers that have created this demand will help sustain it for several years.
What did builders in Arizona learn after the last economic downturn that will make them more prepared when the market inevitably slows down?
LB: Caliente was very fortunate in the last downturn in that we didn’t lay-off any employees, and we continued to grow as a company in both revenue and staff. I attribute that to our diverse portfolio. We operate equally in the public and private sector and manage projects large and small. It’s important not to keep all your eggs in one market sector.
JD: Builders learned to diversify. Those who did not, are not around any longer. At McCarthy we expanded into new markets, including our Arizona-based national solar and water/wastewater groups. And, we invested in developing our Job Order Contracting team and self-perform divisions that allow us to tackle small and large jobs as well as have more control of quality and schedule, particularly as we saw the labor shortage threat on the horizon.
MK: We are seeing smaller companies diversify and include new markets in their portfolio; such as commercial contractors getting into institutional type of work like healthcare or K-12 construction. These areas seem to endure even when the economy takes a turn for the worse. Technology and innovation are allowing us to work smarter with less field people by trying different, less expensive methods of construction that don’t compromise quality.
How has the focus on sustainability and “Green building” changed the way the industry builds in Arizona?
KD: Building codes are including language that advocate that sites need to be more sustainable and power efficient. Alternative energy sources to power sites continues to be an area of growth. Projects having a place to charge your electric vehicle is becoming the norm amongst multifamily, retail, mixed use, and office sties to name a few.
JD: McCarthy earned the top ranking as the #1 Green Builder in Arizona earlier this year, demonstrating that green building practices are integrated into every project. By understanding the goals of each owner, we collaborate with the team to find cutting-edge solutions, material choices and look for ways to provide the right sustainable options based upon the goals of the owner.
JM: I am sure this has impacted project designs in ways that have carried forward as new standards. From a subcontractor’s perspective in this current climate, the focus on cost and speed of delivery seems to be over-shadowing any focus on sustainability or green building beyond that already established during design.
Describe the business climate in Arizona for builders and how that has helped or hindered the industry?
LB: I think the climate is ripe for builders in AZ. The various municipalities, economic development organizations and state leaders are doing an excellent job of attracting and growing business in AZ. I see a genuine effort to collaborate across city borders to ensure we thrive as a state and continue to develop responsibly.
MK: With so much work out there, a revolving door aspect has developed. Contractors are stealing good people from their competitors across the board. From the field to upper management, people are constantly changing. This can create unhealthy competition when it comes to getting work.
KD: Arizona is a hypercompetitive market. Builders still have the economic slowdown in the back of their mind but are faced with a challenge of securing as much work as possible the market is hot but not securing so much that they aren’t successful in building their pipeline. This has created a variety of marketing and business strategies and approaches. A market like this can be great for an owner as more competition can help keep costs down and also gives an owner a range of builder options.
JM: Arizona as a state seems to be pro-business including reasonable, although not perfect, legislation and programs that impact contractors and has attracted more business owners to Arizona who have construction needs. This has helped contractors deliver projects that owners need and is reciprocal and positive for the entire community.
JD: The recent legislative session delivered some favorable policies for business and construction, which are expected to result in a continued strong economy and will afford people to continue building and investing in Arizona. And, thanks to leadership taking progressive action in construction legislation, the community will benefit with better public building projects across the state.